Tax exemption was abolished with effect as of 1 January 2016

Up until 31 December 2015, there were a number of exceptions from the tax obligation for severance pay and additional severance pay under a collective agreement, i.e. severance pay paid in accordance with a collective agreement between employer and employee confederations following involuntary dismissal. Tax exemption has also been granted for severance pay not agreed in a collective agreement that was clearly similar in nature to that paid under a collective agreement, i.e. with similar requirements regarding amount, period of service and the employee's age.

From 1 January 2016, the tax exemption was abolished for severance pay and additional severance pay paid under a collective agreement and similar severance pay not covered by a collective agreement, when the employee fulfilled the conditions for receiving this severance pay after 31 December 2015.

This means that all payments that a person receives in the form of severance pay (whether or not the severance pay is covered by a collective agreement), paid after 1 January 2016, will therefore be taxable as employment income.

If the employee fulfilled the conditions for receiving severance pay paid under a collective agreement before 1 January 2016, the payment is tax-free after the Taxation Act, section 5-15, subsection 1(a), as the provisions for exemption were before they were repealed and regardless of whether payment is made after 1 January 2016. This same tax exemption pursuant to the pre-repeal provisions applies when the employee before 1 January 2016 has an agreement with their employer that the latter will pay severance pay under a collective agreement, even if the payment happens after 1 January 2016.

Unemployment benefit

If you have questions concerning unemployment benefit from the National Insurance Scheme upon the termination of employment and the receipt of severance pay, you must contact Nav.